Fair Work Commission Changes To Annualised Salary Arrangements Coming Soon

We wish to update you in respect of critical changes that may impact your business coming into effect from March 1, 2020. These changes, being implemented by the Fair Work Commission, will directly impact employers of employees on annualised salaries employed under any one of 22 modern awards which have been amended.

Why have the changes been made?

The supposed rationale is in an endeavour to ensure that annualised salary employees are paid at least at or above award rates – i.e. so that annualised salaries are not used by employers to actually underpay employees, particularly for overtime. However, it appears that little thought has gone into how practically employers – particularly small business employers – will be able to implement systems to comply with these changes and the cost of doing so.

What are the changes?

It is essential that you and your business consider these changes and how they could impact your business when they become effective from March 1, 2020. The basic substance of the changes is outlined below:

• There is a requirement that the employer commits to writing what additional hours and penalties are covered within the employee’s annualised salary. It will no longer be sufficient to use common phrases in employment contracts to the effect of “your salary covers reasonable overtime”.
• Your business will be required to diligently record and keep records of employee working hours – that is, start times, finish times and unpaid breaks.
• For each pay period, you must check if an employee has worked outside the limits that the annualised salary covers and, if so, you must pay them the excess for that pay period.
• At the appropriate time each year (most usually at the end of the financial year), or upon termination, the employer must undertake a reconciliation exercise to ensure each employee has not been underpaid. If the reconciliation shows any underpayment (i.e. less than what the employee would have received under the award for the work they have done) then the employer must make good the underpayment.

Steps to take:

There are some steps you and your business can and should do now to ensure compliance with the changes and these include:

• Review all existing annualised salary employees and check if any of the awards set out at the bottom of this email apply. Please note that if an employment agreement does not state that the employee is under an award, they could still be covered by one.
• Decide what action you need to take with regard to documenting what is covered within your employees’ annualised salaries. In this context, it is essential to note that, to specify the additional hours and/or penalties and/or allowances that an annualised salary covers, each employee must be assigned the appropriate classification under the relevant award.
• Look at how you are currently recording and tracking employee work hours and determine if this approach sufficiently captures starts, finishes and unpaid breaks. This could be done via various software solutions.

How to be compliant from March 1:

Although the changes may be new, we encourage you to try to be compliant as soon as possible to avoid running afoul of them. You can achieve this by being diligent with the below actions:

• As soon as possible, document the annualised salary arrangements for each employee to whom the changes apply, including specifying what would be the base minimum wage under the relevant award and how the additional pay above that covers additional hours, penalties and allowances and so on. Further, under the Category 2 and 3 awards, the employee must agree with the arrangements.
• At the end of each pay cycle, check the actual hours worked against the outer limits of additional hours and penalties. If the employee has worked more than those limits, you will need to pay them appropriately.
• Implement a process whereby on an annual basis, or upon the termination of employment, a reconciliation process is undertaken comparing hours worked versus hours outlined in the annualised salary arrangements.

If you are concerned your business may not be compliant, or you want to double-check that you are, or require assistance to become compliant, we highly recommend that you contact an expert employment lawyer to assist. They will be able to audit your current systems and processes and be able to advise you if you are compliant, or if you are not, what you need to do.

Impacted Awards

Individual liability limited by a scheme approved under professional standards legislation (personal injury work exempted).